How to Calculate Vesting

by Mike Parker

Some company retirement plans include a vesting option that awards ownership of the funds in the retirement account to an employee over a specified period of time. The vesting period is defined by the company's retirement plan document. Some types of retirement plans, such as Simplified Employee Pension (SEP) plans, provide for immediate 100 percent employee vesting. Other plans may vest an increasing percentage of ownership to the employee over a given number of years.

1. Review your company's retirement plan document to determine the amount of your company's contribution toward your retirement. Determine the amount of any contributions you've made to the account. You are immediately vested 100 percent in the amounts you've contributed, and these contributions are not subject to forfeiture when you leave the company. Amounts contributed to your retirement account by the company that are not vested, on the other hand, may be forfeited if you leave the company.

2. Consult your company's retirement plan documentation to ascertain the vesting schedule for your retirement funds. Two primary types of vesting schedules are utilized by many companies: cliff vesting and graded vesting. Cliff-vesting plans provide you with 100 percent vesting of company-contributed retirement funds after a certain period of service. Graded vesting provides you with non-forfeitable ownership of a percentage of company-contributed retirement funds for each year of service.

3. Multiply the percentage of vesting corresponding to your years of service with the company by the total amount of employer-contributed funds in your retirement account. Add to this result all amounts you have contributed yourself. This is the vested amount of your retirement account.


  • Your retirement account contributions may be invested in a variety of investment products. Some investments carry greater risk than others. The balance in your retirement account may be greater or less than than the sum of your contributions based upon your investment results.


  • You may be able to withdraw funds from your retirement account up to the vested amount. Early withdrawals from a retirement account are normally taxed as ordinary income and also may be subject to a 10 percent tax penalty.

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